JIN-490 -- Bad after good: Toyota's shrinking feeling

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J@pan Inc Newsletter
The 'JIN' J@pan Inc Newsletter
A weekly opinion piece on social, economic and political trends
in Japan.
Issue No. 490 Wednesday November 12, 2008, Tokyo

The size of cars seems to be shrinking in equal proportion to the
profits of the world's automakers. On Tuesday, Toyota's IQ mini car
was named as Japan's car of the year. The award, decided by a
committee of 65 auto-industry writers and consultants, came just after
Toyota's stock dropped 17 percent, last week. This was the biggest
decline in 18 years and followed the announcement that the company
would see an operating profit of only $6.9 billion -- a 73.6 percent
decline over last year.

The 1-liter IQ, which costs between 1.4 million yen ($14,300) and 1.6
million yen, may take customers away from BMW's Mini One, priced from
2.08 million yen, and Daimler AG's twin-seat Smart ForTwo, which is
sold from about 1.76 million yen. Toyota will no doubt try to use the
award to lure customers away from its competitors, particularly in the
lucrative US market that it has, up until now, done so well in.

Toyota has also announced that it will release a $5000 car for the
growing Indian market. It'll be another two years until it hits
showroom floors, however. The motoring giant has up until now been
staying away from the Indian small car market but due to slumping
sales in other markets, it can no longer afford to ignore it.

Recently, much has been made of GM's dire position. While Toyota is by
no means in the same boat, it is under increasing stress due to, as
some analysts have said, it being a victim of its own success.

"Toyota has become used to carrying excessive investment, and this has
left it vulnerable in a downsizing," Takaki Nakasishi, a J.P. Morgan
Securities analyst, told Reuters. "It's important to recognize that
the current steep decline in Toyota's earnings is not only a cyclical
problem -- the downturn has been exacerbated by its own structural
problems."

Toyota has invested heavily in its North American plants allowing it
to push its market share from 7.5 percent in 1990 to present 16.3
percent. But strategic missteps like the introduction of the full-size
Tundra pickup truck in 2007 as US consumers began turning away from
large gas-guzzling SUVs, didn't help.

Due to the fact the company has expanded so heavily, and compounded by
its unwritten policy of refusing to lay off permanent workers, the
economic downturn has hit it harder then some of its rivals. It's
estimated that the policy of keeping idle workers onboard will cost
Toyota $300 million as they twiddle their thumbs as the factories stay
silent.

With the concentrated expansion in the US, the continued strength of
the yen is bad news for the manufacturer as well. On Wednesday the
dollar was valued at 97 yen and some foreign currency experts are
tipping the US dollar to drop when the credit starts to flow freely
again. Meanwhile, the yen is forecast to stay strong which would be
bad news for the manufacturer.

Unlike other overstretched corporations, however, the Japanese
motoring giant does reportedly have about $18.5 billion in cash -- a
comforting fact for investors. The will be no dramatic failing as is
being predicted of GM, but for a company that had looked like it could
do no wrong, it is a dramatic turnaround. It is going to be tough 2009
for Toyota.

Michael Condon.
Editor-in-chief

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